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                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "Agreement") is made as of May 5, 2004
between Wayne P. Garten ("Executive") and Hanover Direct, Inc., a Delaware
corporation (the "Company").

            1. Provision of Services. Executive shall serve as the Company's
      President and Chief Executive Officer (the "President/CEO") and as a
      member of the Company's Board of Directors (the "Board of Directors").

            2. Responsibilities. Executive shall act and serve during the term
      of this Agreement as the President and Chief Executive Officer of the
      Company and shall report to the Board of Directors. Executive's employment
      responsibilities will include those normally held by the president and
      chief executive officer of a corporation of a similar size and nature to
      the Company. Executive shall devote his full-time efforts in connection
      with his role as President and Chief Executive Officer and member of the
      Board of Directors.

            3. Term. Subject to Section 6 of this Agreement, the term of this
      Agreement (the "Agreement Term") and the term for the services of
      Executive hereunder shall commence as of May 5, 2004 and shall terminate
      on May 5, 2006.

            4. Compensation. As consideration for Executive's performance of
      services hereunder as the President/CEO, the following compensation shall
      be payable pursuant to this Agreement:

            (a)   Executive shall receive base compensation at the rate of
                  $600,000 per annum (the "Base Compensation"), payable in
                  accordance with the Company's normal payroll policies.

            (b)   The Company shall provide Executive with the employee benefits
                  it provides to its other senior executives, including but not
                  limited to 4 weeks of paid vacation per year, and Executive
                  shall also be entitled to participate in such bonus plans with
                  such targets as the Compensation Committee of the Board of
                  Directors may approve in its sole discretion determined in a
                  manner consistent with bonus opportunities afforded to other
                  senior executives under such plans.

            (c)   The Company shall reimburse Executive for his reasonable
                  out-of-pocket expenses in performing services for the Company
                  as President/CEO (such as travel, meals, communications and
                  lodging) which are incurred during the Agreement Term on
                  Company business. Executive shall submit invoices and
                  documentation for such reimbursable expenses on a monthly
                  basis, and the Company shall process payment of the same
                  promptly and in accordance with its customary procedures. In
                  addition, the Company shall reimburse Executive for up to
                  $12,500 of attorneys' fees incurred by

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                  him in connection with legal advice relating to, and the
                  negotiation of, this Agreement.

            5. Stock Options. Subject to shareholder approval of a one for ten
      reverse stock split of the Company's Common Stock, the Company shall grant
      Executive 2 stock options (the "Executive Options") to purchase an
      aggregate of 2,000,000 prereverse split shares of the Company's Common
      Stock ("Shares"), each with an exercise price of $0.195 per Share. The
      Executive Options shall be comprised of 2 stock options - (i) an option
      for 1,000,000 Shares under the Company's 2000 Management Stock Option
      Plan, and (ii) an additional option for an additional 1,000,000 Shares,
      which option shall not be granted under a Company plan. The Executive
      Options shall be exercisable for 10 years and shall be subject to the
      terms and conditions set forth in the respective Stock Option Agreements
      annexed hereto.

            The Executive Options shall vest over a 2-year period. Upon the
      execution of this Agreement, the Executive Options shall be one-third
      vested. Thereafter, the remaining unvested portion of the Executive
      Options shall vest at the rate of 50% per year; provided that the
      Executive Options shall vest in their entirety and become fully
      exercisable upon the earliest to occur of: (i) Executive's resignation
      "For Good Reason" (as defined below), (ii) the Company's termination of
      Executive's services hereunder, other than "For Cause" (as defined below),
      or (iii) a "Change of Control" (as defined below) of the Company. To the
      extent the Executive Options vest and become exercisable pursuant to this
      Section 5, they shall remain exercisable (x) for the Executive Option
      granted under the Company's 2000 Management Stock Option Plan, for the 90
      day period immediately following the date of the applicable resignation,
      termination or Change of Control, and (y) for the Executive Option not
      granted under a Company plan, for the 180 day period immediately following
      the date of the applicable resignation, termination or Change of Control.
      Any unvested portion of the Executive Options on the date of Executive's
      resignation or termination, as applicable, shall be forfeited. In the
      event of vesting of the Executive Options on account of a Change of
      Control, the Company shall use its reasonable best efforts to ensure that
      such vesting shall take place sufficiently in advance of the Change of
      Control (but subject to its occurrence) to permit Executive to take all
      steps reasonably necessary to exercise the Executive Options and to take
      such action with respect to the Shares purchased under the Executive
      Options so that those Shares may be treated in the same manner in
      connection with the Change of Control transaction as the Shares of other
      Company shareholders.

            To the extent not already covered by a registration statement on
      Form S-8 relating to the Company's 2000 Management Stock Option Plan, all
      Shares underlying the Executive Options shall be registered by the Company
      utilizing a Registration Statement on Form S-8 (or other similar form)
      prior to December 31, 2004.

            5A. Definitions. For purposes of this Agreement, the following terms
      shall have the following meanings:


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            (a)   "For Good Reason" shall mean the voluntary resignation by
                  Executive of his employment with the Company on account of any
                  of the following actions: (i) a substantial and material
                  diminution of Executive's duties or responsibilities for the
                  Company; provided, that if, following a Change in Control (as
                  defined below) Executive is appointed to a position as
                  President, Chief Executive Officer or Chief Operating Officer
                  of the Company or its successor, or a subsidiary or affiliate
                  of the Company or its successor, in each case reporting to the
                  Chief Executive Officer of the Company or its successor, such
                  appointment shall not be deemed a substantial and material
                  diminution of his duties or responsibilities, (ii) any
                  reduction of Executive's base salary (as in effect as of the
                  first day of the Agreement Term), or (iii) the Company's (or a
                  successor to the Company pursuant to a Change of Control)
                  requiring Executive to regularly report to work at a facility
                  that is more than 30 miles from Edgewater, New Jersey;
                  provided, however, that in all cases, in order to terminate
                  his employment with the Company For Good Reason, Executive
                  must notify the Company in writing that Good Reason exists
                  within 30 business days ("Business Days") of his knowledge of
                  the event or events constituting Good Reason. The Company
                  shall thereafter have 15 Business Days within which to cure
                  Executive's otherwise Good Reason (the "Good Reason Cure
                  Period"). Unless Executive's Good Reason is cured during the
                  Good Reason Cure Period, his resignation For Good Reason shall
                  become effective on the first Business Day following the
                  conclusion of the Good Reason Cure Period.

            (b)   "For Cause" shall mean the involuntary termination by the
                  Company of Executive's employment with the Company on account
                  of his (i) material breach of any of the material terms of the
                  Agreement, (ii) willful and continued failure to perform his
                  regular duties for the Company, (iii) commission of an act of
                  fraud relating to and adversely affecting the Company, (iv)
                  conviction of, or a plea of guilty or nolo contendere to, a
                  felony, or (v) gross negligence in the performance of his
                  duties which adversely affects the Company. Notwithstanding
                  the foregoing, Executive shall not be terminated For Cause
                  without (A) delivery of a written notice to Executive setting
                  forth the reasons for the Company's intention to terminate
                  Executive's employment hereunder For Cause; (B) the failure of
                  Executive to cure the nonperformance, violation or misconduct
                  described in the notice referred to in clause (A) of this
                  paragraph, if cure thereof is possible, to the reasonable
                  satisfaction of the Board of Directors, within 15 Business
                  Days of Executive's receipt of such notice (the "For Cause
                  Cure Period"); and (C) an opportunity for Executive, together
                  with Executive's counsel, to be heard before the Board of
                  Directors.

            (c)   "Change of Control" shall mean the first to occur of any of
                  the events described in clauses (i) through (iii) below,
                  following the first day of the Agreement Term:


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            (i) When any "person" (as such term is used in Sections 13(d) and
      14(d)(2) of the Securities Exchange Act of 1934, as amended) (a "Person")
      becomes, through an acquisition, the beneficial owner of shares of the
      Company having more than 50% of the total number of votes that may be cast
      for the election of directors of the Company (the "Voting Shares");
      provided, however, that the following acquisitions shall not constitute a
      Change of Control:

                  (A) if a Person owns less than 50% of the voting power of the
            Company and that Person's ownership increases above 50% solely by
            virtue of an acquisition of stock by the Company, then no Change of
            Control shall have occurred, unless and until that Person
            subsequently acquires one or more additional shares representing
            voting power of the Company; or

                  (B) any acquisition by a Person who as of the first day of the
            Agreement Term owned at least 33% of the Voting Shares.

            (ii) (A) Notwithstanding the foregoing, a Change of Control will be
      deemed to occur upon the closing of any of the following (each, a
      "Transaction"):

                        (I) any reorganization, merger, consolidation or other
                  business combination of the Company;

                        (II) any sale or any series of sales occurring on or
                  after the date of this Agreement, involving all or
                  substantially all of the Company's assets; or

                        (III) a complete liquidation or dissolution of the
                  Company.

                  (B) Notwithstanding clause (ii)(A) above, neither of the
            following types of Transactions will be deemed to give rise to a
            Change of Control:

                        (I) a Transaction involving only the Company and one or
                  more of its subsidiaries; or

                        (II) a Transaction (other than as described in clause
                  (ii)(A)(II) of this definition) immediately following which
                  the shareholders of the Company immediately prior to the
                  Transaction continue to have a majority of the voting power in
                  the resulting entity.

            (iii) When, within any 24 month period commencing on or after the
      first day of the Agreement Term, persons who were directors of the Company
      (each, a "Director") immediately before the beginning of such period (the
      "Incumbent Directors") shall cease (for any reason other than death or
      disability) to constitute at least a majority of the Board of Directors or
      the board of directors of any successor to the Company. For purposes of
      this clause (iii), any Director who was not a Director as of the first day
      of the Agreement Term shall be deemed to be an Incumbent Director if such
      Director was elected to the Board of Directors by, or on the
      recommendation of, or with the approval of, at least a majority of the
      members of the Board of Directors or its Nominating Committee who, at


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      the time of the vote, qualified as Incumbent Directors either actually or
      by prior operation of this clause (iii), and any persons (and their
      successors from time to time) who are designated by a holder which, as of
      the first day of the Agreement Term, held 33% or more of the Voting
      Shares, to stand for election and serve as Directors in lieu of other such
      designees serving as Directors on the first day of the Agreement Term
      shall be considered Incumbent Directors. Notwithstanding the foregoing,
      for purposes of this clause (iii), any director elected to the Board of
      Directors to avoid or settle a threatened or actual proxy contest shall
      not, under any circumstances, be deemed to be an Incumbent Director.

            (d)   "Disability" shall mean the inability of Executive to perform
                  his duties under this Agreement for 3 consecutive months or an
                  aggregate of 180 days within a 2-year period.

            6. Termination and Severance. The following provisions shall govern
      the termination of Executive's employment under this Agreement:

            (a)   The Agreement, the Agreement Term, the term for services of
                  Executive and the employment of Executive hereunder will
                  terminate upon the first to occur of the following:

                  (i)   the third day after written notice by the Company to
                        Executive that Executive's employment under this
                        Agreement has been terminated For Cause following the
                        end of the For Cause Cure Period;

                  (ii)  the tenth day after written notice by Executive to the
                        Company that Executive's employment under this Agreement
                        has been terminated pursuant to his resignation For Good
                        Reason following the end of the Good Reason Cure Period;

                  (iii) the expiration of the Agreement Term;

                  (iv)  the death or Disability of Executive;

                  (v)   the day the Company terminates Executive's employment
                        under this Agreement other than For Cause; or

                  (vi)  the thirtieth day after written notice by Executive to
                        the Company that the Executive's employment under this
                        Agreement has been terminated pursuant to his
                        resignation other than For Good Reason.

            (b)   In the event of the termination of Executive's employment
                  under this Agreement for any of the reasons provided in
                  Section 6(a), Executive shall receive hereunder the Base
                  Compensation through the end of the month in which the date of
                  termination has occurred, plus a termination payment as
                  follows:


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                  (i)   If the termination or resignation is pursuant to Section
                        6(a)(i), 6(a)(iv) or 6(a)(vi) above, no additional
                        amount shall be due and owing to Executive;

                  (ii)  If the termination or resignation is pursuant to Section
                        6(a)(ii) or 6(a)(v) and the Executive has not received
                        or become entitled to receive a Change of Control
                        payment under Section 6(b)(iii), Executive shall be
                        entitled to receive, subject to his continued compliance
                        with the requirements of Sections 9 and 10 of this
                        Agreement, the following severance payments (A)
                        continued payments of his monthly Base Compensation for
                        a period equal to 18 months payable in accordance with
                        the Company's normal payroll practices and policies; and
                        (B) the pro rated portion (based upon the number of days
                        in the fiscal year prior to the effective date of
                        termination) of bonuses earned for the fiscal year in
                        which the effective date of termination occurs pursuant
                        to the Company's bonus plans, as applicable (based upon
                        the terms and conditions of the applicable bonus plan),
                        as described in Section 4(b), accrued vacation and
                        continued coverage under the Company's health, life
                        insurance and long-term disability benefit plans for the
                        18-month period immediately following Executive's
                        termination or resignation, as applicable. Any such
                        bonus shall be paid to Executive, subject to his
                        continued compliance with the requirements of Sections 9
                        and 10 of this Agreement, at such time as is consistent
                        with the Company's customary practice.

                  (iii) If a Change of Control occurs within the Agreement Term,
                        then, subject to Section 6(b)(iv), Executive shall be
                        entitled to receive a lump sum payment equal to 200% of
                        his Base Compensation, such payment to be made within
                        thirty days of the closing of the transaction resulting
                        in the Change of Control.

                  (iv)  If a Change of Control occurs within the Agreement Term,
                        then, if the Company so requests, as a condition to his
                        entitlement to the payment under Section 6(b)(iii),
                        Executive shall continue his employment hereunder until
                        the end of the Agreement Term, provided that: (i)
                        Executive continues as President, Chief Executive
                        Officer or Chief Operating Officer of the Company or its
                        successor or the Company's or its successor's subsidiary
                        or affiliate; and (ii) he reports to the Chief Executive
                        Officer of the Company or its successor.

                  (v)   If the termination is pursuant to Section 6(a)(iii) and
                        the Executive has not received or become entitled to
                        receive a payment under Section 6(b)(iii), then, at the
                        end of the Agreement Term, he shall be entitled to
                        receive, subject to Executive's continued compliance
                        with the requirements of Sections 9 and 10 of this
                        Agreement,


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                        monthly severance payments at the rate of Executive's
                        Base Compensation for a period of 18 months, payable in
                        accordance with the Company's normal payroll practices
                        and policies and continued coverage under the Company's
                        health, life insurance and long-term disability benefit
                        plans for the 18-month period immediately following the
                        end of the Agreement Term.

            7. Arbitration. Any dispute or other controversy arising under or in
      connection with this Agreement (except that the Company may, at its
      election, seek to enforce Executive's obligations under Section 9 and/or
      10 of this Agreement in a court of competent jurisdiction) shall be
      settled exclusively by binding arbitration in New York, New York, in
      accordance with the Employment Dispute Resolution Rules then in effect
      with the American Arbitration Association. Judgment may be entered on the
      arbitrator's award in any court having jurisdiction. The Company shall pay
      all of Executive's attorneys' fees in connection with any arbitration
      brought by either of the parties hereto pursuant to this Section 7 in
      which Executive prevails.

            8. Indemnity. If Executive is threatened with or made a party to, or
      called as a witness or deposed or subpoenaed in, any action, suit or other
      legal, administrative or governmental proceeding or other legal process by
      reason that Executive is or was deemed a consultant, officer, employee or
      other agent of the Company or any of its affiliates, the Company shall
      defend, indemnify and hold Executive harmless to the maximum extent
      allowed by applicable law and the Company's Certificate of Incorporation
      and By-Laws against all liabilities, obligations, losses, damages,
      penalties, actions, judgments, suits, claims, disbursements and expenses,
      including counsel fees reasonably incurred by Executive in connection
      therewith, to the extent the same are not paid under the Company's D&O
      insurance policies ("Indemnified Liability" or "Indemnified Liabilities");
      provided however, that Executive shall not be entitled to indemnification
      hereunder to the extent any such liability, obligation, loss, damage,
      penalty, action, judgment, suit, claim, disbursement or expense results
      from the gross negligence, willful misconduct or criminal conviction or
      other conduct which bars indemnification under applicable law
      ("Misconduct") of Executive as determined by a court of competent
      jurisdiction. Payments under this indemnity in respect of indemnified
      settlements or judgments shall be paid at the time of final settlement or
      final judgment (from which no appeal may be taken), or, in respect of
      counsel fees or costs of defense, which shall be limited to one counsel,
      shall be paid at the time such fees or costs are incurred.

            The Company may require the Executive to deliver a written
      undertaking to return any amount advanced to him for indemnification
      hereunder if it shall thereafter be determined that indemnification is not
      available to Executive due to his Misconduct.

            This Section 8 shall survive the termination of this Agreement.

            9. Confidentiality. Executive shall at all times both during his
      employment hereunder and after termination thereof regard and preserve as
      confidential all trade secrets and other confidential information
      pertaining to the business of the Company that


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      have been or may be obtained by Executive by reason of the performance of
      the terms of this Agreement. Executive agrees that all documents, reports,
      manuals, drawings, designs, tools, equipment, plans, proposals, marketing
      and sales plans, customer lists, or materials made by the Company or
      coming into Executive's possession by reason of his performance under this
      Agreement, are the property of the Company and shall not be used by
      Executive in any way prohibited by this Agreement. Except as expressly
      provided herein, during the Agreement Term and after termination thereof,
      Executive shall not deliver, reproduce, publish or in any way allow, after
      due care, information describing any trade secrets or other confidential
      documents or things to be delivered or used by any third party without
      specific direction or written consent of the Company or in response to
      lawful process. Immediately upon termination of this Agreement, Executive
      shall promptly deliver to the Company all documents, tools, equipment,
      drawings, blueprints, manuals, material and significant or confidential
      letters and notes, reports, price lists, customer lists and copies
      thereof, and all other materials relating to the Company's business and
      which are in the possession of or under the control of Executive.
      Confidential information as defined above shall exclude information or
      materials that become generally available to the public other than through
      disclosure by Executive in violation of this Agreement.

            This Section 9 shall survive the termination of the Agreement.

            10. Nonsolicitation. During the Agreement Term and for a period
      ending on the later of (i) the period during which the Executive receives
      severance payments as provided herein, or (ii) one (1) year after the
      termination of Executive's employment with the Company, Executive and/or
      any person, firm, corporation or other entity which is controlled by
      Executive, shall not, without the prior written consent of the Company,
      personally or as an employee, owner, consultant, manager, associate,
      partner, agent or otherwise, or by means of any corporate or other entity
      solicit for employment or hire any employee of the Company or any of its
      subsidiaries. Executive acknowledges that the restrictions contained in
      this Section 10 are reasonable and necessary to protect the legitimate
      interests of the Company, do not cause the Executive or his affiliates
      undue hardship, and that any violation of any provision of this Section 10
      will result in irreparable injury to the Company and that, therefore, the
      Company shall be entitled to preliminary and permanent injunctive relief
      in any court of competent jurisdiction and to an equitable accounting of
      all earnings, profits and other benefits arising from such violation,
      which right shall be cumulative and in addition to any other rights or
      remedies to which the Company may be entitled.

            This Section 10 shall survive the termination of the Agreement.

            11. Miscellaneous. This Agreement shall be governed by and construed
      in accordance with the internal laws of the state of New York.

            12. Modification. This Agreement may only be modified by mutual
      agreement.


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            13. Assignment. This Agreement is a personal service contract and
      may not be assigned by either party, except that the Company may assign
      this Agreement to its successor in interest in connection with a sale of
      assets, merger or similar transaction, or any Change of Control
      transaction, so long as the successor assumes the Company's obligations
      hereunder.

            14. Notices. All notices required or permitted by this Agreement
      shall be in writing and shall be deemed received when personally
      delivered, or the next business day after deposit in overnight mail or
      five days after mailing by registered mail. Notices shall be sent to the
      parties at their addresses set forth below or to such different addresses
      as such parties shall direct by notice sent in accordance with this
      paragraph.

            If to Executive:

                  Wayne P. Garten
                  President and Chief Executive Officer
                  Hanover Direct, Inc.
                  115 River Road, Building 10
                  Edgewater, New Jersey 07020
                  Email: wgarten@hanoverdirect.com

            with copies to:

                  Daniel Pollack, Esq.
                  Pollack & Kamanski
                  114 West 47th Street, 19th Floor
                  New York, New York 10036
                  Fax.: 212-575-6560
                  Email: dapollack@pollacklawfirm.com

            If to the Company:

                  Corporate Counsel
                  Hanover Direct, Inc.
                  1500 Harbor Boulevard
                  Weehawken, New Jersey 07087
                  Fax: 201-272-3498

            and

                  Chief Operating Officer
                  Hanover Direct, Inc.
                  115 River Road, Building 10
                  Edgewater, New Jersey 07020
                  Fax: 201-272-3465

            with copies to:


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                  Sarah Hewitt, Esq.
                  Brown Raysman Millstein Felder & Steiner LLP
                  900 Third Avenue, 21st Floor
                  New York, New York 10022
                  Fax: 212-895-2900
                  Email: Shewitt@Brownraysman.com

            15. Counterparts; Telecopy. This Agreement may be signed in two or
      more counterparts, each of which shall be deemed an original, but all of
      which together shall constitute one and the same instrument. This
      Agreement may be executed by telecopy signature which shall be deemed an
      original.

            16. Successors and/or Assigns. Whenever in this Agreement either of
      the parties hereto is referred to, such reference shall be deemed to
      include the successors and/or permitted assigns and/or personal
      representatives of such party, and this Agreement shall inure to the
      benefit of and shall be binding on the parties hereto and the successors
      and/or permitted assigns and/or personal representatives of each such
      party.

            17. Entire Agreement. This Agreement (together with the Stock Option
      Agreements annexed hereto) sets forth the entire agreement of the parties
      hereto in respect of the subject matter contained herein and supersedes
      all prior agreements, promises, covenants, arrangements, communications,
      representations or warranties, whether oral or written, by any officer,
      employee or representative of any party hereto.

            18. No Conflict. Executive represents and warrants to the Company
      that neither the execution of this Agreement nor the performance of his
      obligations hereunder violate any agreement to which he is a party or by
      which he is otherwise bound.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                         HANOVER DIRECT, INC.

                                         By:   /s/ Michael D. Contino
                                               ---------------------------------
                                               Name:  Michael D. Contino
                                               Title: Executive Vice President


                                         /s/ Wayne P. Garten
                                         ---------------------------------------
                                         Wayne P. Garten



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